Background

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After decades of continuous growth, the agricultural output growth rate has started to slow down while input growth has turned negative. This is partly due to the persistent world economic crisis which has contributed to a general slowdown of production and trade.

More recently, problematic international questions such as food security and food access have restored the issue of production levels and productivity to the heart of the international policy agenda, albeit in a slightly different way. The source of resource yield gain has shifted markedly from input intensification to improvement in total factor productivity which includes the effects of technical change.

Aim

The aim of the present study is to analyse factor and resource productivity trends and to discuss the main policy approaches to support green growth in agriculture, bringing some new conceptual considerations at the farm level and on regional pathways of sustainable intensification.

The report is organised in four chapters: in the first chapter we analyse the main trends in total factor productivity and in sustainability of agriculture production according to available measures. In the second chapter we will present the main areas to be developed in the EU in order to foster sustainable productivity growth. In the third chapter we analyse current instruments implemented at EU level and provide a general assessment through case studies that link specific good agriculture practices with the policy framework in place.

The case studies aim to support the on-going discussions on how to operationalise development of sustainable productivity growth in the EU, identifying the main obstacles. We present a selection of farm practices that could enhance total resource productivity.

An assessment of CAP instruments provides some indications of direction for the future Common Agricultural Policy (CAP) in order to build sustainable, productive and climate-friendly agricultural systems. Chapter4 gives some recommendations for the future of CAP instruments in the direction of inducing sustainable intensification strategies.

Main findings

In this study we have analysed changes occurring in the last decade in the volume of production of EU MS as a result of variations in land area and yields, which can arise from dis/intensification of the existing technology or from greater efficiency that is usually associated with innovation and implementation of new policies. We have adopted the concept of resource decoupling, meaning the reduction of the rate of use of (primary) resources per unit of economic activity. Resource decoupling leads to an increase in the efficiency with which resources are used. Impact decoupling, by contrast, requires increasing economic output while reducing negative environmental impacts. Such impacts arise from the extraction of required resources (such as groundwater pollution), production (such as land degradation, wastes and emissions) and the phase of use of commodities. Designing strategies for a decoupling of agricultural production growth from undesirable environmental impacts requires improved understanding of trends and their drivers.

The following table shows the main trends for a selected group of EU countries. A first group of countries (the Netherlands, Germany and Denmark) has had a positive trend in agricultural output, explained by gains in agricultural area and in TFP and, at the same time, has reduced unit GHG emissions and nitrogen surplus per hectare. Still, the indicators used to monitor the natural asset base (bird population and presence of permanent pastures) show a negative trend. In the last part of the table some of the drivers that at national level can explain these trends are reported: in particular, the higher investment in R&D, the lower average age of farmers, and the use of economic instruments as pollution taxes on environmentally-damaging inputs. In Eastern and Southern European MS the increase in factor productivity has not been sufficient to offset the negative trend in land area. Moreover the decoupling of growth from environmental impact is less evident, especially with regard to nutrient surplus. In most cases, the aging of farm managers and the lower rate of expenditure in R&D may partly explain these trends and help pinpoint the main areas for policy response.

With regard to policy instruments, many elements contribute to explain the main dynamics affecting TFP. Fiscal regimes regulating for R&D, which show a strong heterogeneity in MS legislation, seem to be quite controversial with respect to their real impact. At the same time, having an adequate legal framework is essential for the development of new technologies: though Europe’s plant breeding industry and research have been very active, carrying out more than 50% of world research, the EU regulatory framework appears to be inadequate with regard to new breeding techniques. On the other hand, few MS have levied taxes on farm inputs as an instrument to address environmental issues.

Section 2.2 is dedicated to “best practices” and enabling conditions for SI identified in interviews with farmers and regional decision- makers in four EU regions. Considering farm level and regional pathways of sustainable intensification (SI), four pathways have been mapped out: Agronomic Development, Resource Use Efficiency, Land Use Allocation and Regional Integration. Sustainable intensification strategies depend on regional problem-setting and normally apply a combination of measures in several pathways. In order to steer agricultural systems towards SI, agricultural and regional development policy needs to incentivize the uptake of site-adapted strategies.

In chapter 3, we look at the role of CAP in the process of fostering green growth in agriculture. The CAP has gone through a deep reform process in the last 20 years, replacing market support mechanisms and payments that are potentially harmful to the environment with potentially more beneficial support, such as payments subject to cross compliance and the introduction of greening requirements. In most cases, in the EU, the main vehicles to encourage green growth in agriculture are the Rural Development Programmes through monetary incentives to adopt practices that go beyond what is required by compliance with existing regulations. Research and innovation in agriculture have had increasing importance within the second pillar of the CAP, while in the first pillar a shift from unconditional direct payments towards targeted ones has occurred with the latest CAP reform.

The process of CAP reform shows a slow but progressive shift from trade-off policies (production vs. environmental impact) to win-win policies that are able to make production goals compatible with sustainable management of natural resources. The new technology applied to farming, such as remote sensing control and robots, lead in this direction.

The table below focuses on two aspects: the first is the growth of the policy tools that directly or indirectly have an effect on both the goals of sustainability and productivity; the second is that there is actually a considerable shift towards forms of integrated policies (win-win), while trade-off generation policies tend to be superseded.

However, it is important to keep in mind that theinteraction of sustainability and productivity (the so-called ‘sustainable productivity’) has not been officially adopted by the EU as a policy target. Nevertheless, the attempt to reduce trade-offs and work on the win-win approach is quite openly recognised, with a view to building a significant body of tools in favour of sustainable productivity.

Specifically about direct payments, they are recognised to be more selective and more “green” than the past. However, many studies maintain that the cost of the overall transfer of resources to farmers is undoubtedly out of proportion with the environmental effects.

The European Innovation Partnership “Productivity and Sustainability” seeks to promote the main goals of the CAP (efficient and competitive agricultural sector, sustainable supply of food, adaptation and mitigation to climate change etc.) while supporting better coordination between research, knowledge, technology and farmers, forest managers, rural communities, businesses, NGOs and advisory services. To date, the EIP AGRI service point has organised 23 focus groups on specific topics relating to needs, problems and opportunity of agriculture and forestry that involved some hundreds of experts from all EU countries while 94 RDPs envisage financing Operative Groups in 24 MS. The need for more activities and information is highlighted together with the importance of supporting multi-region projects. At MS level evidence shows that the complexity of administrative procedures risks reducing farmers’ participation.

Another major issue on which the report focuses is the relationship between viable food production and the level of productivity and intensification. Among the CAP tools, it seems that Producer Organisations (POs) and their system are well designed to contribute to the improvement in farm incomes and the functioning of the food chain on an environmentally sustainable basis.

We present here the case study of the Italian fruit and vegetable (F&V) sector, which shows that PO expenditures on operational programmes are mainly devoted to actions aimed at improving product marketing and environmental concerns, enhancing production planning and improving or maintaining product quality.

The quality regimes (certified organic production, PDO/PGI system, certified integrated production, and private quality certification) taken into account within operational programmes allow the specific objectives of improving competitiveness in the F&V sector to be pursued and satisfied, protecting the environment and meeting consumer expectations. The long-standing experience of POs in the F&V sector suggests some recommendations that could be effective for all agricultural sectors, for which the last CAP reform has extended the possibility of building up POs. These regard strengthening the market-oriented role of POs and supporting PO innovation and internationalisation processes.

In conclusion, the framework and the cases make it clear that:

EU farming has taken steps to become more sustainable and to combine productivity and sustainability: it results in TFP staying positive and in decoupling of growth and negative environmental effects.

There are four different directions in which SI can take shape. It depends on regional cases what (combination) is most attractive.

In the agronomic area there are often options to combine productivity and sustainability that are facilitated by better management by farmers, precision agriculture and new breeding techniques.

Policy coherence and strategy matter. At the aggregate level, it is perhaps stronger in NW Europe (innovation, economic instruments in pollution) but there are interesting examples of SI paths in southern Europe as well, as shown by the Organic Valley case study in Italy

Instruments such as PO, EIP and Research are thus extremely important to help regional communities achieve viable food production although several factors reduce their potential impact, such as the complexity of administrative procedures in the case of EIP, or the absence of an adequate legal framework for Plant Breeding. ICT constitutes a very interesting area in pushing towards SI solutions but more work has to be done especially in data science. In the on-going CAP reform discussion, increasing sustainable productivity should be officially recognized as a policy target in order to achieve stronger policy coherence both at the EU and MS level.

Figure 2 illustrates the decomposition of global output growth in Europe, across the last five decades. The agricultural output growth rate (the continuous line) is slowing while input growth has turned negative. TFP growth offsets the decline in resources from falling in absolute terms. The figure shows the contribution of irrigation, the change in land area and the growth rate in yield, which is further decomposed into growth due to input intensification (inputs per area) and TFP. The underlying source of resource yield gain has shifted markedly from input intensification to improvement in TFP. TFP estimates should be interpreted as including not only the effects of technical change, but also the effects of using inputs of higher quality.

The EU has developed several policies aimed at reducing emissions and promoting the carbon sink function of agriculture. GHG productivity is a widely accepted indicator at international level to monitor green growth (OECD). Differences within the EU are still high.

Taxes on energy are the most important source of environmental taxes in agriculture.

Fig.14 shows the distribution of agricultural holdings by age of the manager. The share of young managers is generally below 10%. At the same time, some countries, namely Portugal, Italy, Romania and Lithuania, have an above-average share of elderly farmers.

Sustainable intensification pathways (SIP) are generic ways of how a region can make progress towards sustainably intensified land use. The framework of the four SIPs is represented in Figure 15.

Economic and environmental benefits resulting from the application of the IRRISAT service are connected with the fact that, for a given yield, applied irrigated water volumes are usually higher than effective crop water demand.

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